Question

Each of the four independent situations below describes a sales-type lease in which annual lease payments of $145,000 are payable at the beginning of each year. Each is a finance lease for the lessee. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1 6 11% Situation 2 3 6 7 10% 12% 4 7 12% Lease term (years) Lessor's and lessee's interest rate Residual value: Estimated fair value Guaranteed by lessee $59,000 $8,900 $8,900 $59,000 $69,000 0 Determine the following amounts at the beginning of the lease: (Round your intermediate and final answer to the nearest whole dollar amount.) Situation 1 2 3 4 A The lessor's 1. Total lease payments 2. Gross investment in the lease 3. Net investment in the lease B The lessee's 4. Total lease payments 5. Right-of-use asset 6. Lease liability

Answer 1

Solution:

1 2 3 4 1 1 1 1 145000 145000 145000 6 11% 6 INPUTS Time (beg - 1; End o) Lease Payments Lease term Interest Rate Residual Value Estimated Fair value Guaranteed by lessee 145000 7 12% 7 10% 12% 0 59000 59000 8900 8900 0 0 69000 Situation 2 1 3 А 870000 870000 929000 727968 1015000 1023900 870000 1015000 1084000 772366 680905 745180 The Lessors Total Lease Payments Gross investment in Lease Net Investment in Lease The Lessee Total Lease Payments Right of Use Asset Lease Liability B 870000 870000 1025000 680905 694664 1015000 741154 741154 745678 680905 694664 745678

Formula:

А B с D E F 3 4 1 1 1 2 1 1 1 =E3 INPUTS Time (beg - 1; End 0) Lease Payments Lease term Interest Rate Residual Value Estimated Fair value Guaranteed by lessee 145000 6 0.11 =C3 6 0.1 =D3 7 0.12 7 0.12 0 59000 59000 8900 8900 0 0 69000 1 2 3 4 5 6 7 8 9 10 11 12 A 13 14 15 16 B 17 18 19 Situation 1 2 3 4 =C3 C4 =D3 D4 =C13+C7 =D13+07 |=PV(C5,C4,-C3,,C2)P =PV(D5,D4,-D3,,D2) +PV(D5,D4,-07) =E3 E4 =E13+E7 =PV(E5, E4,-E3, E2)+PV(E5, E4,,-E7) =F3*F4 =F13+F8 =PV(FS,F4,-F3,,F2)+PV(F5, F4,-F8) The Lessors Total Lease Payments Gross investment in Lease Net Investment in Lease The Lessee Total Lease Payments Right of Use Asset Lease Liability =(C3*C4)+C8 =C15 =(D3*D4)+D8 =PV(D5,D4,-D3,,D2) =D18 =(E3*E4) =PV(E5,E4,-E3,,E2) =E18 =F3*F4+(F8-F7) =PV(F5,F4,-F3, F2)+PV(F5,F4,- (F8-F7)) =F18 =C18

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